EUR/USD Drops to 7-Week Lows After U.S. Inflation Data

The EUR/USD pair came under renewed pressure on Friday and fell to its lowest level in seven weeks as the dollar jumped, in tandem with U.S. Treasury bond yields, following another round of inflation figures.

At the time of writing, the EUR/USD is trading at the 1.0550 zone, down 0.4% on the day and on track to post a 1.4% weekly decline. The pair scored its weakest level since January 6 at 1.0536 at the beginning of the New York session.

Data from the U.S. showed that the annual core PCE inflation, the Federal Reserve’s preferred gauge of inflation, came in at 4.7% in January, hitting the highest rate in six months and surpassing the market consensus of 4.3%.

The inflation data fueled expectations the Fed will maintain its hawkish stance, which saw the U.S. bond yields and the dollar soaring. The 10-year yield reached 3.97%, while the 2- and 5-year rates climbed to 4.82% and 4.23%, respectively.

Following the higher-than-expected PCE inflation reading, investors are betting on probabilities of 70% of a 25 bps hike versus a 29.9% of a higher increase of 50 bps, which case is getting stronger. In that sense, next week’s nonfarm payrolls data (March 3) and February CPI figures (March 14) would influence expectations ahead of Fed’s meeting on March 21-22.

From a technical perspective, the EUR/USD maintains a short-term bearish bias according to indicators on the daily chart as the RSI and MACD are both deep in negative ground. However, if the bulls manage to hold the 1.0480 level, the pair will retain its bullish longer-term outlook as indicators remain in positive territory on the weekly chart while the price hovers above the 100- and 200-day SMAs.

On the downside, support levels are seen at February 24 low at 1.0536, followed by the 1.0500 area, and the January low of 1.0480. On the other hand, bounces will face immediate resistance at the 1.0600 area, followed by the 1.0650 level and the 20-day SMA around 1.0720.